Does Your “Vote” Affect the Market?

I talk about volume a lot in this space, as well as in my Trading Trainer community

The reason is because volume is a critical concept to understand. As I like to say, volume is the great validator.

Stock prices go up and they go down. But every price movement is not the same. The quality of the price movement is determined by volume — how many people were driving the price movement.

Imagine, for a moment, that in one particular stock, there are 100 possible “votes” out there. And let’s say 50 of those votes are typically bearish and the remaining 50 votes are typically bullish.

On any given trading day, there would be an equal push and pull.

But what would happen if some of the people abstained from “voting”?

If 80 of the people withheld their votes for the day — all of the voters that are typically bearish and 30 of the voters that are typically bullish — then that means that 20 people who are typically bullish determine the direction of the market that day.

In this hypothetical scenario, obviously the stock would move in a bullish direction.

However, the bullish price movement would be artificial. Because the next day, should all the “bear voters” decide to vote again… but the 30 voters that typically vote bull abstained again… the price movement that day would more confidently go in the bearish direction — because more voters cast their ballots.

The lesson is this: The number of voters who cast their ballot can be seen in volume. Volume validates price movement.

Without sufficient volume, price movement is less reliable. But the more volume there is, the more confident we can be that the price movement is genuine.

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